Budget 2017 positive for India Real Estate Developers

The policy guidelines enlightened in the Union budget 2017 are positive for real estate developers working in the field of affordable housing, according to the rating agency Moody’s Investors Service.

The largest and most effective policy guideline for the real estate sector is the granting of infrastructure status to affordable housing. This will allow developers to lead to lower interest rates and tax exemptions for the construction industry, which has seen a reduction in launches and sales in recent years, Moody ‘ said in a release.

The Budget has proposed to reduce the retention period for gains on land and buildings to qualify as a long-term investment for two years from three years. At the same time, the base year for the calculation of the capital gains with indexation benefits changed from 1981 to 2001.

These steps will reduce the capital tax burden on property sellers, which encourages the secondary real estate market. This result can, in turn, increase the investor activity in the housing market. The benefit of this measure can, however, is partly offset by the negative impact of covering some losses that can be offset against the annual income.

Policy directives will have a positive impact on the affordable housing segment, but the positive impact will be dampened in the luxury and mid-tier segments of the market. Lodha real estate developers and India Bulls Real Estate have developed in all segments of the market, said Moody’s.

According to management, Lodha real estate developers has about 40% -50% of their projects, through the sales value, in the affordable category in the sense of the new budget. India bulls also have some developments that can be categorised into the affordable residential segment of the market, the release added.

According to Moody’s, some of the projects of Lodha Developers and India bulls could be qualified as affordable housing projects and will be eligible for lower cost financing and tax benefits.

The two companies also benefit from a one-year exemption from notional rental income from unsold inventories. Effectively, this means that they will get tax relief, since the shortening of sales after the demonstration exercise.

Lodha Developers and India Bulls will also benefit indirectly from measures to reduce the capital gains tax, as this development will help the secondary real estate market. A liquid secondary market will again benefit the primary market, says the press release.

Both Lodha Developers and India bull’s real estate credit profiles remain exposed for the short term to the prevailing weak operating conditions, Moody’s added.
A proposal in the budget includes setting an upper limit for a number of set-off losses from residential real estate compared to an annual income in Rs 2 lakh per year.

Previously, all losses from residential property ownership including interest paid on mortgages to purchase the property could be offset against other sources of taxable income, which resulted in the tax paying being lost. The proposed move will have a negative impact on the demand for property, as the tax advantage for the purchase of a property is going down for investment purposes.

The introduction of the cap on some losses that can be offset will keep investors away from the middle and high-end segments of the market said the release. If you need any help relating to buying property in India feel free to contact form button below.